Tennessee banking commissioner urges tailored oversight to protect community banks and enable prudent innovation

Greg Gonzales, commissioner of the Tennessee Department of Financial Institutions, told the Banking & Consumer Affairs Subcommittee on a snowy Wednesday that state regulators should calibrate oversight so community banks remain viable and can pursue prudent innovation.

Gonzales said the department’s primary objective is “a safe and sound banking system that can support economic development,” and that regulators should avoid a one-size-fits-all approach that imposes unnecessary cost on small institutions.

The commissioner emphasized the department looks at traditional safety-and-soundness measures when determining supervisory expectations and, when asked about authority over deposit insurance, listed “safety and soundness, public confidence, [and] being able to work with the industry” as factors the commissioner would consider. He added that prior commissioners have required federal deposit insurance in practice “for decades,” and that clarifying that authority in statute would be useful.

Gonzales warned the committee that Tennessee has lost many state-chartered banks over recent decades and urged policy choices to stem that trend. “Since 1992, we've gone from 207 Tennessee state banks to a hundred and 4 today. Just 10 years ago, we had a 50,” he said. He described consolidation as mainly the result of acquisitions and mergers rather than failures and said the department is exploring options—including asking federal partners to let state regulators perform examinations for the smallest, well-rated, noncomplex banks and then share results—to reduce duplicative compliance costs.

On innovation, Gonzales said the department is open to responsible adoption of new products and services, including discussions about crypto and artificial intelligence, but that such activity must be managed prudently. “We support banks and others in being able to innovate. Yeah. It just needs to be done prudently,” he said. He clarified the department’s current supervisory role for crypto-adjacent activity: “We don't regulate crypto. We don't regulate crypto. What we do, though, for those institutions that are engaged in crypto, we try to understand the impact of that activity on the financial condition of those companies.” He added the department does regulate money-transmitter companies that exchange crypto for fiat or other crypto.

Gonzales summarized recent regulatory simplification actions at the department, saying it has repealed three full rule chapters and is processing the repeal or amendment of several others. He repeated the department’s stated philosophy of limited regulation calibrated to risk and urged cooperation between state and federal regulators to maintain community banking capacity.

Committee members asked about causes of consolidation and about crypto. Representative Hemmer asked for reasons behind the drop in charters; Gonzales pointed to compliance costs, scale economics and merger activity. Representative Vaughn and others praised Gonzales’s accessibility and his willingness to discuss regulatory tradeoffs.

Gonzales concluded by telling members the department will continue to focus on core supervisory responsibilities while seeking efficiencies and that he welcomes early conversations with institutions and policymakers about innovation and regulatory expectations.